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Kosmos Energy (NYSE:KOS)
Q4 2020 Earnings Call
Feb 22, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone. Welcome to Kosmos Energy's fourth-quarter 2020 conference call. Just a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, vice president of investor relations at Kosmos Energy.

Jamie Buckland -- Vice President of Investor Relations

And thanks to everyone for joining us today. This morning, we issued our fourth-quarter earnings release. This release and the slide presentation to accompany today's call are available on the investor's page of our website. Joining me on the call today to go through the materials are Andy Inglis, chairman and CEO; and Neal Shah, CFO.

During today's presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement, and SEC filings for more details.

These documents are available on our website. At this time, I will turn the call over to Andy.

Andy Inglis -- Chairman and Chief Executive Officer

Thanks, Jamie, and good morning and afternoon to everyone. I'll start today's presentation with a reminder of our strategy and the characteristics that differentiate Kosmos. I'll then look back at 2020 and the strategic steps we made during the year despite the COVID-related challenges before Neal walks through the quarterly numbers and the financial progress we made in 2020. I'll then wrap up the presentation with a look forward into 2021 and the increased momentum we expect through an active year ahead.

Turning to Slide 2, which looks at our portfolio and the unique characteristics that define the company. Kosmos has a high-quality portfolio, a world-class conventional oil and gas assets with strong ESG credentials. Our focus on offshore exploration and development production along the Atlantic margin has not changed. We have three old production hubs in Ghana, the Gulf of Mexico, and Equatorial Guinea as well as a world-scale LNG development in Mauritania and Senegal.

These advantage assets have low-decline rates, brands or HLS price benchmarks, and an overall carbon intensity that is significantly lower than the industry average. As our recent Climate Risk and Resilience report showed, we are making portfolio decisions and capital choices to deliver shareholder value consistent with a lower carbon world. Safety and sustainability are two core values that are critical to the delivery of our strategy. And I'll talk about both subjects in more detail later in the presentation.

Alongside the producing assets and our LNG development, we continue to high grade our exploration portfolio with a focus on returns. This means prioritizing proven basins where we have a deep technical understanding, a large resource portfolio, and can leverage existing infrastructure. Our acquisitions in Equatorial Guinea and the Gulf of Mexico targeted opportunities that created value through optimizing the existing production base and through infrastructure-led exploration or ILX. And we built a diverse hopper of ILX opportunities across the three basins.

Given their low cost and low decline rates, these assets produce significant free cash flow even at low oil prices. Through the 2020 cost reduction this it says, Neal will talk about later, we have materially lowered our corporate free cash flow breakeven and we expect our base business to generate a healthy level of free cash flow at current oil prices this quarter. On the gas side, the phase development of Tortue is expected to generate a long-term free cash flow stream to complement the cash generative oil assets in the portfolio today. First gas to Tortue Phase 1 is expected in the first half of 2023.

And finally, the business is underpinned by a solid balance sheet that enables us to execute our plans. We came through 2020 with ample liquidity, a staggered that maturity schedule with nothing maturing this year, and the business that is expected to generate cash and reduce leverage. Turn to Slide 3, where I'd like to focus our strategic progress last year. The environment for most of 2020 was extremely challenging for the sector and for society as a whole.

However, against that backdrop Kosmos delivered on his key strategic priorities. Our production assets delivered a robust performance in 2020 producing around 61,000 barrels of oil equivalent per day. This is only an 8% decline year on year despite a reduction in capex of around 40% over the same period. Tortue Phase 1 was around 50% completed at year end with the project back on track despite COVID-related impacts.

We published our first ever TCFD aligned Climate Risk and Resilience report during the year followed this with our sustainability report and set a goal to be carbon neutral for Scope 1 and Scope 2 emissions by 2030 or sooner. This Climate Risk analysis supported our decision to monetize -- monetize a portfolio of exploration assets bringing in around $100 million of proceeds in the fourth quarter with further upside potential on future success with no more capital exposed. Following that transaction, we now have an exploration portfolio focused on high-return, fast-payback opportunities, and the proven basins we know well, where we restarted drilling in 4Q with a successful Winterfell ILX well. On cash, we reached the cash flow inflection point in the second half of the year with positive free cash flow in 4Q driven by higher prices as well as significant and sustainable cost reductions which have lowered our corporate breakeven.

And we establish the financing path for Tortue Phase 1, which should enable us to fund our current interests through the first gas. Working closely with BP, the operator, we have also optimized Phase 2 significantly lower in capex, which we expect to enhance future returns and cash flow. And finally, on the balance sheet, we diversified our available source of cap -- capital with the Gulf of Mexico term loan and we maintain healthy liquidity through the year with around $570 million available at year end. Turning to Slide 4, which looks at our reserves.

A sustainable EMP business requires low-cost, lower-carbon assets and a strong reserve base. Kosmos has both, with total 2P reserves of around 480 million barrels of oil equivalent, a 2P reserves to production ratio over 20 years. As you can see on the top chart on this slide, our 2P reserves are split evenly between the oil-producing assets in Ghana, Equatorial Guinea, and the Gulf of Mexico, and the Tortue gas assets, which we expect to come online in 2023. Year-on-year changes, the 2P reserves largely reflect 2020 production and the optimized second phase of the Tortue development, which should increase project capacity to 5 million tonnes per annum.

Our 1P SEC reserve base 240 million barrels larger reflects the impact from 2020 production and the lower SEC price tag. It is around $20 per barrel lower than 2019 prices, which impacted the economic limit for some assets later in life. At current prices, we'd expect those price-related reserve changes to reverse in 2021. Looking forward, we have significant additional discovered resources that should increase our reserves when booked.

Our 1P future adds are expected to come primarily from Tortue Phase 1 which would add an additional 100 million barrels of oil equivalent at current prices. While Asam and Winterfell are expected to further increase our 2P reserve base. Turning to Slide 5. As I said in my opening remarks, safety is the core value at Kosmos and nothing is more important than the safety of our employees and contractors.

The slide shows our safety metrics over the last five years benchmarked against the industry. Our One Team, One Goal initiative to deliver HSE excellence has recently become even more important in the wake of a tragic incident in the Gulf of Mexico this January in which a subcontractor working on a Kosmos contracted drillship was fatally injured. The incident is a stark and tragic reminder that journey to zero incidents and accidents is more than a sad of HSE metrics. As a company, we're determined to learn and prevent anything like this from happening again.

The incident is still being investigated, we've already begun. to share the initial learnings with our peer companies engaging with more than 20 operators in the Gulf of Mexico. Looking at the right-hand side of the slide, our commitment to health and safety extends beyond our direct operations and informs how we engage with our communities. In each of our countries, our teams were quick to support the COVID-19 response effort with critical medical equipment, testing kits, and other supplies.

We also set up a hunger relief program to address food and insecurity that has been made worse by the pandemic. I'm proud of the way our people rose to the challenge, supporting each other and our communities through the year. Turning to Slide 6, the operational performance for the quarter. In Ghana, cargos and sales were in line with our guidance while entitlement production was sequentially lower due to the lack of drilling activity in the same half the year.

Uptime and reliability numbers were strong in the quarter as they have been through 2020 and we continue to work closely with the operator to ensure this performance is sustained. In Equatorial Guinea, the performance was in line with expectations and we look forward to our first drilling campaign starting later this year. In the Gulf of Mexico, production was in line with guidance. The production number on the slide does include the benefit of contractual royalty relief which we receive due to lower realized oil prices in 2020.

In December, we spotted a successful Winterfell ILX well, which I'll talk about later. In Mauritania and Senegal, phase one of the Tortue project ended the year around 50% complete with the force majeure as being the goal of our results in October, finalized in the 11-month delay. Overall, most of 2020 so slowdown in operational activity across the company due to the pandemic and the ability to safely execute. However, in the fourth quarter, activity started to return.

We expect the momentum to continue building as we move through 2021. More on that in a few minutes. Now, I'd like to hand it over to Neal to take you through the financials.

Neal Shah -- Chief Financial Officer

Thanks, Andy. Good morning and good afternoon to everyone on the call. Just as Andy talked about the strategic progress Kosmos made in 2020, I'd like to start off with the financial progress we made during the year. Specifically, the decisive actions we took to reduce costs early in 2020, which have materially lowered the company's cash breakeven.

As you can see on the chart on Page 7, we made significant reductions to operating expenses, cash G&A, expiration expense, and base business capex, resulting in Kosmos being a much leaner and fitter business today. We expect most of these cost savings to be sustainable as we move forward with fewer people working on a more concentrated set of high-graded objectives, which we believe positioned the company to create the most shareholder value. In a higher price environment, this lower cost base should be significantly enhanced future returns and cash generation. However, one point to note is that due to the pandemic, we -- we underinvest in our base production assets compared to our typical maintenance capex levels.

In 2020, we are planning to normalize our spend which should allow production to grow back to 2020 levels by year end with further upside potential in 2022. Turning now to Slide 8. This is slide many of you have seen before and it looks at the key line items for the quarter. I don't plan to spend a lot -- spend time on each item other than say the results for the quarter were consistent with our expectations with significant progress both sequentially and against the same period last year.

While production and realized price were lower, we were successful in our cost initiatives, and noted on the previous slide, it made progress on opex in 2020. However, we didn't deliver everything we wanted to, and therefore per barrel metrics are a bit higher than expected in the fourth quarter. This is an area we'll continue to work with our respective operators through 2021. Turning now to Slide 9, which looks at the balance sheet and our liquidity position.

Despite the volatility in record low oil prices in 2020, Kosmos maintained a solid balance sheet with healthy liquidity levels through the year as can be seen on the chart. In the fourth quarter, we closed the Shell transaction receiving around $100 million of proceeds. It also up to $100 million of additional continued consideration payable on future drilling success. We maintained tight control of capex during the year with around $147 million of total capex, which takes an account the Shell proceeds and is in line with company guidance.

Hedging remains an important part of our financial strategy and we've hedged around 60% of this year's production and that started to hedge our 2022 production. With that, I'll hand it back to Andy.

Andy Inglis -- Chairman and Chief Executive Officer

Thanks, Neal. I mentioned earlier in the presentation that operational momentum slowed in 2020 as reduced activity and focused on protecting our people and operations across the portfolio. At the end of 4Q and into the start of this year, activity levels have picked up in all areas. As the slide shows, infill drilling activity on our base business was curtailed in 2020.

In 2021, we expect to triple the amount of activity this year with a total of nine wells spread across Ghana, Equatorial Guinea, and the Gulf of Mexico This increased activity is expected to reverse declines and drive up production with year-end exit rates materially higher than those seen at the start of the year. At Tortue, we're already seeing significant momentum after last year's pause and expect Phase 1 to be around 80% complete by year end. We're also returning to exploration with two to three wells planned this year. We've already seen success with Winterfell in January and we aim to drill Zora in the second half of the year.

Success of Zora would open additional opportunities that we would evaluate later in 2021. Turning to Slide 11, to look at that activity set in more detail. In Ghana, we've seen the successful installation of the CALM buoy where the first offloading earlier this month. The start over the CALM buoy removes the need for shuttle tankers to move oil from the FPSO tanker so should result in lower operating costs for the partnership going forward.

As the operators communicated to the market, the drilling rig has been contracted as expected to arrive in the second quarter. We plan to drill two producer wells and one injector on Jubilee in 2021 as well as a gas-injector well in TEN. The rig of the contract length of up to four years, given the amount of high-quality infill targets available in Ghana, and the partnership is also evaluating having a second rate to accelerate that production growth. We also continue to work with the operator on optimizing projects that can deliver incremental production.

We plan to start the development of Jubilee South East this year with drilling activity targeted for 2022 and 2023. In Equatorial Guinea, Phase 2 of our ESP program began this month. We've started an infrastructure enhancement campaign to increase operational uptime on the assets. In the second and third quarters, we expand to drill 3 infill wells with the aim of keeping production growing through 2021.

In the Gulf of Mexico, the Kodiak completion is under way and is expected online next month. We also plan to drill the Tornado-5 well mid-year, which is expected online in the third quarter. With this increase in activity, we expect production to grow with a year and exit rate around 60,000 barrels of oil equivalent per day with further momentum into 2022. Turning to Slide 12.

2021 is a year of significant delivery for Tortue. Phase 1 was around 50% complete at the end of last year. We expect it to be around 80% complete at year-end 2021. The two images on the slide show the areas where we expect the most progress, namely the subsea and the concrete breakwater.

The top image shows one of the subsea marine structures being fabricated in the yard in Indonesia. The fabrication of the subsea equipment is expected to be complete by year end with the manifolds and flow lines installed by early 2022. The bottom image shows one of the concrete caissons when we load breakwater for the hub terminal. The concrete pour for two of the 21 caissons is now complete with a production line ramping up.

The floating dock arrived in Dakar in mid-January and has started preparations for case on offloading in early summer. There's a great video online from Eiffage copied in the footnotes on the slide showing the forward steps to complete the breakwater. As we outlined our 3Q results in November, our funding path has been established with the sale and leaseback of the FPSO making good progress. Earlier this month, we signed an MoU with BP outlining the terms and conditions around the sale.

As previously communicated, the FPSO will be sold for back cost to an SPV controlled by BP and lease back to the partnership. The joint venture will utilize the FPSO proceeds to fund group cash cause. We expect the net proceeds to cover $250 million of our capital requirements in 2021 and are targeting close within the second quarter. We expect that further savings will be rolled over into 2022 reducing our overall future capital obligations by $320 million in total.

While advancing Phase 1 financing, we have also moved Hhase 2 forward while we're still targeting FID around the end of 2022. We anticipate the capital requirements for the optimized phase to be largely funded on Phase 1 cash flows. We see this as a very important value driver for the company which gives us greater flexibility around future gas sales and pricing with significant value potential LNG markets that are already showing signs of tightness. Turning to Slide 13, which shows the recent signals about tightening market.

2020 has the lowest LNG supply growth since 2014, with only 5 million tons of new supply entering the market. In addition, there was only one new project FID. Gains that tightening supply picture, LNG demand continues to rise up 3% in 2020 versus 2019 despite the impacts of COVID-19 on global energy demand. We believe that there's strong demand for LNG sets continue the top-charted Wood Mac analysis we showed in November, the core forecaster's significant supply demand gap opening up in the middle of the decade.

Even incorporating the recently FID North Field expansion project in Gaza, Wood Mackenzie still forecasts a supply gap of around 50 million tonnes to the end of the decade and around 175 million tonnes for 2035. The bottom chart on this slide shows the significant increase in gas prices we've seen in the last few months. The dashed line is the JKM future strip from May this year with a solid view -- blue line that features strip today, which reflects a strong rally we've seen as the market has tightened. Average NBP and JKM futures for the next three years both average above $6/mmbtu.

Tortue Phase 1 is contracted out in oil and slope which is current prices should generate significant cash flow. Phase 2 would not contract to the gas so we retain the option of pricing it against oil gas or a combination of both, with both looking like attractive options in today's prices. Given its low breakeven, we expect significant value creation from this phase of the project. Turning to Slide 14.

I've talked about our ramp-up in infill drilling in 2021. Now I'd like to look at our exploration activities for the year. Kosmos has a diverse and deep inventory of ILX and plays extension opportunities across three proven basins and we expect to increase our activity in 2021. In January, we had an early success with Winterfell, we discovered in de-risks around 100 million barrels of gross resource across Kosmos' acreage.

The partners are now working on the appraisal and development plans and will update the market as we have more information. Winterfell is a great example of why Kosmos made the DG acquisition in late 2018. Access in low-cost hydrocarbons which can be tied into existing infrastructure with quick payback and high returns. Once more, the developments lead and expected to have a carbon intensity significantly below sector averages because of the natural advantages of the deepwater Gulf of Mexico.

More on that shortly. We anticipate the next ILX well will be Zora starting the second half of the year. Like Winterfell, this has the potential to be a meaningful hub-scale development in the case of success. One advantage of our diverse exploration portfolio is the flexibility to invest our capital across multiple basins.

If drilling plants are interested in the Gulf of Mexico, we'll look to invest in equally high-return opportunities in Equatorial Guinea or Ghana. I'd now like to hand back to Neal to talk about guidance for the year.

Neal Shah -- Chief Financial Officer

Thanks, Andy. On Slide 15, we've included our usual detailed guidance for the year including our detailed guidance for the year in the Appendix. So, on this slide, I'd like to focus on the key items. As that -- Andy outlined earlier, in 2021, we are resetting the dial with production expected to rise through the year as activity increases.

Our guidance of 53,000 to 57,000 barrels of oil equivalent per day reflects today's production of around 53,000, rising to an exit rate of around 60,000 barrels equivalent per day at year-end. We expect to spend around $225 million to $275 million in '21 on the base business with an 80-20 split between sustaining and growth capex, with capital being directed to the infill drilling and ILX opportunities with the highest returns. At $55 Brent, we expect the base business, excluding Mauritania and Senegal to generate around $100 million to $200 million of free cash flow which we plan to use to de-lever the balance sheet. In Mauritania and Senegal, capex for the year is expected to be around $350 million.

As previously communicated, we expect this to be funded primarily through the sale of the FPSO and the refinancing of the national oil company loans in 2021, a $100 million benefit to Kosmos. As Andy mentioned, we are planning to close the FPSO sale within the second quarter at which point we expect the benefit to be $250 million net to Kosmos in 2021 with the residual proceeds from the FPSO sale benefiting 2022. I'll -- I'll now hand back to -- hand it back to Andy.

Andy Inglis -- Chairman and Chief Executive Officer

Turning to Slide 16. Kosmos plans on deploying its capital toward the most compelling opportunities in our portfolio both in terms of returns and fitness for the future. As I mentioned on the earlier ILX slide, the deepwater Gulf of Mexico has one of the lowest carbon intensities of any oil basin in the world. This is due to the natural aquifer drive in the Gulf of Mexico, the pipeline network that limits flaring, and the ability to utilize existing infrastructure.

This was highlighted in the recent Wood Mac report which -- which can be seen on Slide 16 which shows the deepwater Gulf of Mexico to have the second-lowest emission intensity of the major U.S. crude oil suppliers. Once more, the analysis of the players in the Gulf of Mexico, Kosmos has the assets with the lowest carbon intensity. This can be seen on the second chart on the slide.

It is for these reasons that we believe Kosmos can play its role in the energy transition. Kosmos supports the Paris Agreement and we welcome the U.S.'s return to it. We've tested the resilience of the company against the Paris Agreement scenarios, adjusted our portfolio accordingly, and believe we are well-positioned. The U.S.

administration's recent executive orders have not affected our Gulf of Mexico production operations and we have a deep inventory of more than 20 high-grade ILX prospects on existing acreage. Like other companies in the sector, we are watching the developments carefully to understand how new policies will be implemented on a practical basis. As the new U.S. administration that shapes these policies, we are both ready to engage and open to working with policymakers to develop creative solutions to deliver the energy the world needs with fewer carbon emissions.

With its abundant infrastructure, the deepwater Gulf of Mexico is an important source of supply in the world, delivering advantage oil that is both low cost and lower in carbon intensity. Turning now to Slide 17. Sustainability is a core value for Kosmos and we are a company with -- with strong ESG credentials across all the categories. Managing through the pandemic, our focus on sustainability has not changed.

Looking at the three categories. On the environment, Kosmos perform detailed scenario analysis for how the value of our assets would fare in various climate scenarios. We post -- published the results in our Climate Risk and Resilience report. The conclusion of this analysis was in the transition to a Paris 2-degree world, the value of long-cycle exploration was most at risk because of the long time frames needed to enter a new country, drill, discover, appraise, and develop.

The risk to invested capital over that period increases significantly. For that reason, we decide in early 2020 not to pursue long-cycle frontier exploration opportunities in new basins. Following that decision, we monetized a portfolio of frontier exploration assets to focus on our shorter-cycle, infrastructure-led opportunities in Peruvian basins. Earlier this year, we set a target to become carbon-neutral, the Scope 1 and Scope 2 emissions by 2030 or sooner, and we're making progress to measure, reduce, and mitigate emissions across the business in line with that target.

One of our flagship social investments is the Kosmos Innovation Center, an award-winning program in West Africa that invests in young entrepreneurs and small businesses. We empower entrepreneurs turn their ideas into viable, self-sustaining businesses and we work alongside promising small businesses to help them scale up and reach their full potential. This program started in Ghana in 2016 and subsequently expanded into Mauritania and Senegal. On governance, Kosmos has the industry-leading position on transparency.

We believe we remain the only U.S. oil and gas company that publishes all of its contracts with host governments on its website, a clear differentiator from the rest of the industry. We continue to challenge ourselves to be better in all of these areas and we strive to be a leader in the industry both in terms of financial performance and our ESG credentials. Kosmos was recognized this year one of America's most responsible company -- companies by Newsweek and Statista and we retain a AA rating in our ESG ranking from MSCI which puts us in the top quartile among our peers.

So, turning finally to Slide 18 to wrap up today's presentation. In conclusion, I want to reiterate the characteristics that make Kosmos unique before opening up to Q&A. We have a portfolio of world-class advantage assets with strong ESG credentials. We have a diverse, proven basin exploration portfolio of high-grade ILX opportunities that's focused on short paybacks and high returns.

Our assets generate cash. And with last year's cost-cutting initiatives, we are a leaner company with a lower cost base in a much more constructive commodity-price environment. And we have a solid balance sheet and healthy liquidity that will support the operational momentum we expect to build through 2021 and into the future. Thank you and I'd now like to hand the call over to the operator to open the session for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Andy and Neal. I appreciate all your -- your comments this morning. I wonder if you could give a little bit of sense on -- on the FPSO sale-leaseback. You guys say that it's -- I guess there's two parts of the question.

It's targeted for a 2Q close. Can you talk about what, you know, to the -- to extent you can, what -- what are the steps between now and in closing? And I guess the second piece, Neal, I wanted to make sure I understood the -- will -- will the capex be on your ledger up until -- up until the close and then after -- after that, it's -- it's -- it's going to be gone, so essentially be kind of a -- a first-half capex?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah. Hi, Joe. It's -- it's Andy. Well, I -- I'll take the first part of the question and then Neal can -- can follow-up with the -- the detail on the -- on the capex, yeah? You know, as -- as we talked about in November, we laid out a funding path the first gas.

I think, you know, we're -- we're absolutely executing on that plan and we made a lot of progress in the -- in the first part of this quarter. And that, you know, obviously involve the signing of the MOU with BP which contained all the key terms for the sale and leaseback. You know, the structure is the same structure we articulated in -- in -- in November. We have an SPV purchasing the FPSO from the Tortue JV.

The SPV will be a BP-controlled entity that raises the debt and it has a BP guarantee associated with it. So, actually, the most important point is that this is a very straightforward process, involves BP and -- and Kosmos. And clearly, we've -- we've gone through the work to set up the structure and the -- and the terms. So, in terms of -- of steps forward, we've got over -- take the -- the MOU and then convert that into the detailed agreements and we're working hard on -- on that.

Then it -- it -- it's a question then of going out and -- and raising the external debt. So, we're well on track to get all of that done by the -- by the second quarter.

Neal Shah -- Chief Financial Officer

And then to your second question, Charles. Yes, so -- so-- so, from a capex perspective, the $350 million for the year is spread pretty ratably through the year. And so, we are, you know, currently funding sort of cash calls and we'll -- we'll recognize capex related to that. But as you noted, sort of post the FPSO sale, we would net the -- the proceeds essentially against the capex from the project and thereby sort of offsetting each other, you know, post-close.

Charles Meade -- Johnson Rice -- Analyst

Got it. That -- that's -- that's helpful detail. Appreciate it. And then a second question on the EG assets.

You know, you got a, you know, I noticed that, you know, you're going to have three infill wells and -- but -- but on your slide, I think it's 14 where you show some exploration targets. It doesn't look like any of those ILX wells are -- are going to have an exploration, you know, tale or -- or exploration element to them. Is that -- is that the right read?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah, I think the right, you know, I -- I -- I think the first thing, Charles, is sort of step back with this. There's a lot of opportunity in the -- in the acreage. You know, when we went into EG, it was all about, you know, looking about the production-enhancement opportunities that we could see in Sabre Ntomme. You know, they -- they haven't been the focus for the prior owner and we were -- we're continuing to work through those.

So, you know, we've -- we've -- we've obviously had a campaign for increasing this, you know, ESPs. We're continuing with our second campaign of ESPs that's under way as we speak. We did the work to enhance the seismic imaging in the existing fields in Sabre Ntomme that identify the infill target and we're getting on with those. And then the next phase of activity is going to be the -- the expiration targets.

So, we're drilling the -- the infill targets first because those are things that we believe have the, you know, the shortest payback and we'll then come to the -- the ILX program. You know, we're -- we're drilling targets for 2022. But I think, you know, what's interesting about it is that -- that -- that, you know, the opportunity set's rich. And the most important part of it is to ensure that we execute, you know, effectively, efficiently, you know, deploy the capital in the-- in -- in a right way to bring forward that opportunity set.

And, you know, we're, you know, we -- we -- we -- we're doing OK. We clearly had an interregnum in the back end of -- of last year with -- with COVID but we're back, you know, with the activity ramping up now both in terms of the production optimization, the ESP program, then the rig which will start, you know, next quarter.

Charles Meade -- Johnson Rice -- Analyst

Got it. That's helpful detail. Thank you, Andy.

Andy Inglis -- Chairman and Chief Executive Officer

Great. Thanks, Charles.

Operator

Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.

Neil Mehta -- Goldman Sachs -- Analyst

Good -- good morning, guys, and -- and thank you for all this great detail here today. The -- the first question is around leverage levels. In a net debt around $2 billion, is there a level, Andy and Neal, that you want to target in absolute levels either debt or net debt that you want you want be -- you want to aim toward? And just talk about the path -- path to getting there.

Andy Inglis -- Chairman and Chief Executive Officer

Yeah. What I know -- and Neal take that last one. Neal?

Neal Shah -- Chief Financial Officer

OK. Hey, good morning, Neil. Yes. In -- in terms of, you know, we were on a path to sort of deleveraging, you know, pre-COVID and, you know, post-COVID, you know, we still remain on the same path.

Neil, we've extended sort of our target. It's to get to 1 to 1.5 times net leverage that's, you know, net debt about $500 million or $1 billion less than what we have today, combined with sort of rising EBITDAX. And so, you know, the good thing about sort of, you know, our exposure is, you know, we are -- we have high-margin oil. And therefore, you know, as prices are in a sort of $60-plus range, you know, leverage comes down relatively quickly.

And so, you know, we need to, you know, the -- the EBITDAX will naturally rise as both production and price, you know, improves from sort of COVID levels. And at the same time, you know, we will redirect sort of the free cash flow to the business to continue that paydown. So -- so, you know, it's a long -- long-winded way of answering the question but we're on that same path. And, you know, we can, you know, especially given sort of that constructive commodity-price environment, we can get there pretty quickly.

Neil Mehta -- Goldman Sachs -- Analyst

Nice. That -- that's helpful. And then the second question is just around Gulf of Mexico and there's been a lot of investor feedback and questions about your exposure there. I guess, the -- the counterpoint would be as Tortue comes on, this becomes a smaller part of the portfolio.

Just how do you -- how are you sizing risk in the Gulf of Mexico? Help us walk through, you know, the difference between bans on federal leasing versus your ability to drill and how do you see this asset fitting into the long-term story for Kosmos?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah, Neil, I'll -- I'll pick that up. You know, as I said in my remarks, I said, you know, we've-- Kosmos is in support of the Paris Agreement and we're pleased that the U.S. is -- is -- is back in. You know, we see the Gulf of Mexico as being an important contributor long term to the world's oil supply.

It -- it's -- it's naturally advantaged and is lower carbon. I think, you know, we -- we, therefore look forward to working with the -- the new administration on the right practical steps forward to, you know, enable that resource to be appropriately developed. So, I think, you know, the -- the long term as you were to look at it -- and actually the medium term, it -- it -- it remains an advantaged basin. Sort of, you know, I -- I believe nothing has changed in -- in that regard.

You know, but how does it practically unfold? You know, from a -- from a leasing perspective, I think, you know, Kosmos is -- is -- is relatively not impacted. You know, we've got a deep pipeline of opportunities on existing acreage we -- we hold. You know, we've got around 20 high-graded prospects today that are ready to drill. So, you know, if -- if they were a longer-term effect from no -- no leasing, that -- that won't affect our business.

And then I think, you know, we -- we just have to wait and see what's -- what's going to happen when the time comes to the -- to -- to drilling permits. But again, you know, I'm -- I'm -- I'm hopeful that -- that actually the practical steps that will enable that to -- to move forward. And I think that's the intent of the administration. So, you know, we're -- we're -- we remain very constructive both from where it sits in our portfolio today.

I think it remains very competitive just because of the natural advantages it has. And I think it is just interesting to share with you actually the, you know, the -- the Wood Mac analysis of that and where our portfolio sits. So, I think it's naturally advantaged. It, therefore, has a place.

We are robust to a slowdown in leasing because of the work that we did over the last couple of years to build the portfolio. And, you know, yes, there will be some practical things that need to be done from a drilling perspective but we're confident that that's going to move forward. So, you know, I remain actually very positive about -- about the basin and about the -- the conversations that we'll have with the administration as a result.

Neil Mehta -- Goldman Sachs -- Analyst

Great color. Thank you.

Operator

Our next question comes from the line of Bob Brackett with Bernstein Research. Please proceed with your question.

Bob Brackett -- Bernstein Research -- Analyst

Good morning, thank you. I had a question on the -- the sustaining capex program. I think you're guiding to around $200 million and that holds you at say around 60,000 barrel oil equivalent a day. At what sort of internal decline rate?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah. You know, Bob, I think if you look at the -- the sustaining capex, you're right. It's in that sort of $200 million maybe a little more, $200 million, $225 million level. So, we're sort of ramping up in 2021 that gets you to -- to that level.

But in that sort of, you know, range, I know, you can hold production flat, yeah? So, that's the -- that's the level of capex to sustain production across Ghana, Gulf of Mexico, and Equatorial Guinea.

Bob Brackett -- Bernstein Research -- Analyst

Against what sort of decline rate?

Andy Inglis -- Chairman and Chief Executive Officer

Underlying decline rate, you know, it's probably -- you've got to split it out between infill drilling and the -- the production optimization that we do. So, there are some activities of, you know, ESPs for instance are -- will be expense as opposed to -- to capitalized. But if you look at the overall decline rates, probably around 10%, and then you're offsetting that with the production optimization and then the infill drilling.

Bob Brackett -- Bernstein Research -- Analyst

Thanks. Quick follow-up, on the Tortue Phase 2 FID, so the -- the front-running concept is this lean sort of concept that you've laid out before. Are you bringing a single concept to FID or are you carrying several concepts that could potentially be FID-ed?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah, you know, it -- well, clearly the point of -- of optimizing the concepts, yeah, work is being done to optimize the -- the detail. But the fundamental concept in terms of maximizing the use of the existing infrastructure is the way forward that we've agreed with BP. So, what does that mean? It means that you're fully utilizing the -- the subsidy infrastructure, you're fully utilizing the available gas processing facility -- capacity on the FPSO, you're fully utilizing the -- the pipeline from the FPSO to the -- to the nearshore. Yeah.

So, that -- that remains unchanged and then ultimately, you know, there are some -- some opportunities around the -- the number of additional wells that you can fit into those subsea manifolds, you can do some additional sort of extensions, etc. But ultimately, what you're trying to do is say what's the best configuration for the -- the reservoir on subsidy that fully optimizes the facilities' infrastructure that we have in place, yeah? So, the concept is sort of not changed. The issue is how do you get the most out of it.

Bob Brackett -- Bernstein Research -- Analyst

Yeah, that's clear. So, there's no stalking-horse concept of, say, a 4-million-tonne-per-annum concept?

Andy Inglis -- Chairman and Chief Executive Officer

No, no. There's no -- there's no stalking horse, no. And in fact, it's almost the reverse, Bob. It's sort of saying, you know, let's make sure we have absolutely optimized this to get the most through it.

Yes, quite the reverse. Yeah.

Bob Brackett -- Bernstein Research -- Analyst

Yup. That's clear. Thank you.

Andy Inglis -- Chairman and Chief Executive Officer

All right. Thanks.

Operator

Our next question comes from the line of James Carmichael with Berenberg. Please proceed with your question.

James Carmichael -- Berenberg Bank -- Analyst

Hi. Afternoon, guys. Just a couple. Firstly, on Equatorial Guinea, I guess just looking at the -- the transaction there recently in the -- the incoming partners sort of outlined an ambition to get to 55,000 barrels a day I think over the next two or three years.

I just want to know if that's in line with your ambitions there as well or your sort of understanding of the upside potential? And then maybe if you could just remind us around the -- the options of the $300 million direct investment to get you to -- to first gas at Tortue and I guess sort of the expectations around timing and then your preference for how that's structured? Thanks.

Andy Inglis -- Chairman and Chief Executive Officer

Yeah. Hi, James. Well, I'll take the first question and then Neal can handle the second one. Yeah, it's great to have a new partner and -- and, actually, it's great to have a partner that sees the -- the potential in the asset.

They've clearly invested into EG on that -- on that basis. So I think the fundamental potential that we both see is -- is very similar. We -- as I said earlier in -- in the -- in the comments, Charles, that -- that the EG assets have a layer cake of opportunities. There's a layer cake from production optimization, which we've done very successfully on the second round of that.

There's a layer cake now that we're building in from the infill drilling. And then there's a layer cake from the ILX opportunities that sit around the -- the assets. So I think we -- we know when we -- we see a very similar view of the -- of the opportunities there and it's good to have a partner that wants to invest alongside us. So I don't think we have a different view.

I'm -- I'm not going to comment ultimately about the -- the production because that's -- that's -- that's for them to -- to -- to talk about. And clearly, we're not -- we're not giving guidance today that far out. But I think the -- the most important part of the story actually is the -- the scale of the opportunities set. And in that sense, this is a third-party verification of the story that we -- we talked about when we first went into Equitorial Guinea.

We talked about exactly those layers. And clearly, last year was a bit of a challenge in terms of having to hold back on the -- the pace at which we pursued that. But we're back in action now. And there -- there -- there's -- there remains a lot of oils to be produced from Ceiba and Okume, and the surrounding ILX opportunities.

And this has a long-term role in our portfolio.

Neal Shah -- Chief Financial Officer

And then, James, just to answer your question on the -- the direct investment in Mauritania and Senegal. It is the last piece of the financing puzzle that -- that we'll put in place that we clearly focus on putting the FID still in place within the second quarter and then the NOC financing. And then as for the direct investment, we're looking at a number of options as we sort of referred to in -- in November to fill that last $300 million. Those alternatives, there's a couple of them, including the partial sale of our non-Tortue gas assets as part of the funding solution.

We have the ability to put it within the RBL. And then lastly, we have the ability to -- to fund it from -- from excess cash flow sort of higher oil prices. And so there -- there's a number of different solutions, and I think we're -- we're keeping the optionality around which is the best ultimate solution. But we'll do that last within the sequence of Mauritania and Senegal financing.

James Carmichael -- Berenberg Bank -- Analyst

Great. Thanks. I just one -- one -- one other one if I -- if I can actually go. Just on the -- the -- that net-zero target.

Does -- is that sort of -- does that include your -- your normal assets as well? And can you just give us a sort of sense of how the West African portfolio stacks up against the GoM on those intensity metrics that you outlined? Thanks.

Andy Inglis -- Chairman and Chief Executive Officer

Yeah, a good question, Mark. Yes, I just want to scope to you the definition is around your -- your gross operated. Yeah, so but clearly that's in the Gulf of Mexico. And we've got about sort of 50,000 barrels a day of gross operated production in -- in the GoM.

Yeah. So clearly, with -- with -- with -- without Scope 1 and Scope 2 target, we're -- we're -- we're focused on the things that -- that -- that we can control. And therefore, that -- that covers that -- that operated activity. And of course, it benefits from being -- having a lower carbon intensity.

It -- it -- it's at around as we showed on our slide, it's sort of around 10 kilograms per tonne. So as you look around the world oil basins, that's -- that's it -- that is differentiated. Yeah. I -- if you start to look more broadly at the -- at the non-operated activities, they're probably closer to sort of the industry average that are -- it's around 20.

Yeah. That said, there -- the assets in Ghana, for instance, are -- are our advantage because you do have the ability to export gas. Yes. So we -- we -- we're connected to a gas grid.

The gas goes to -- to power. And actually, the need for that gas is increasing through time. We've probably doubled the amount of gas export over the last couple of years from around sort of 60 to closest probably to averaging 100 to 120 currently. So the demand for the gas is there.

So the ability to drive down the -- the carbon intensity of the -- of the Ghana assets I think is -- is -- is -- is high. So there's a start I think from a higher starting point, but the operator as -- as we've got clear plans and -- and where we'll fully support it of -- of moving the -- the Ghana assets down the carbon intensity round. So Scope 1 and Scope 2 is -- is about things you can -- you operate, and -- and that's the Gulf of Mexico for us, and we got a significant gross operated footprint there. And then -- and we're targeting the -- the delivery of that alongside our other ESG commitments through that 2030 timeframe.

James Carmichael -- Berenberg Bank -- Analyst

Great. Thanks a lot.

Andy Inglis -- Chairman and Chief Executive Officer

All right, thanks.

Operator

Our next question comes from the line of Mark Wilson with Jefferies. Please proceed with your question.

Mark Wilson -- Jefferies-- Analyst

Hi, good afternoon. I'd -- I'd like to ask about the bigger picture for Mauritania and Senegal. I think it's -- it's -- this presentation last year that had a last slide on the -- on the Greater Tortue resource base, 102 [Inaudible] gas in place plus the three hubs: Tortue, Yakaar, and BirAllah, and -- and 10 million tonnes per annum potential across each one of those. But we should Tortue is now -- now 5 million tonnes proposed for the two trains.

Could you give us a view on the bigger picture across all those assets? And then also, what are your current marketing plans for the potential sale down there? Neal just mentioned possible sale of non-Tortue gas assets regarding the damage to investment. Thank you.

Andy Inglis -- Chairman and Chief Executive Officer

Yeah, Mark. Yeah. I think the same gas base and I see different character of assets. I think that you're seeing the -- for Tortue, itself, Phase 2 gets you to 5 million tonnes per annum.

That fully utilize the available infrastructure. It's the most capital efficient project, therefore, it's the right thing as the next building block. Beyond that, there is significant resource that would support a 10 million tonne per annum scheme. That would require this addi -- additional infrastructure.

So that is remaining upside for the -- for the future. I think, yes, the Teranga is interesting because it's actually closer to the Darkar Peninsula. And the -- the concept work that the BP is pursuing at the moment will have a domestic gas scheme first followed by an LNG export scheme. So that -- that -- that -- that is an important component actually of -- of the energy plans for -- for Senegal to be able to replace diesel-burning power with -- with gas, and, therefore, enable a -- a lower carbon future for -- for Senegal with that gas power generation.

So I think a significant population of Senegal, there's a desire to grow their -- their power generating capacity, but obviously to do that in a carbon-friendly way. So the -- the concepts around Yakaar-Teranga are to how do you stage the right infrastructure that enables the domestic scheme to be the -- the bedrock of the development and then actually supplement it with the -- with gas exports. And again, the infrastructure is different because it's more adjacent actually to the major urban areas in -- in Senegal. And then BirAllah is -- is, again, different.

You have smaller population in -- in Mauritania, but still a need for -- for -- for -- for gas. Yeah. But not the scale of gas that would actually enable a --a -- a full development of BirAllah. So in terms of the thinking, I think around the -- the development concepts, it's the area where there's probably more work to be done to come up with the optimized development schemes for BirAllah.

But in terms of its -- its cost point as you look at it across the world today, it's as competitive as a Tortue, very similar reservoir density, very similar, therefore, economics and cost of supply. So I think the -- the resource is significant as you rightly say, Mark. I think our focus has been on getting the cash flow from the first project, optimizing it with Phase 2. And then I think it's about conversations with both countries which are around how is the resource optimally developed that fits their plans and the -- and the resource description.

Mark Wilson -- Jefferies-- Analyst

Ad do you see yourself going back to the active sort of sales process you had that -- about a year ago on those assets?

Andy Inglis -- Chairman and Chief Executive Officer

I think on -- on -- on that, I -- I think this is -- this is about -- it's one of the options that Neal discussed. I think it's about -- it's about finding the right fit for the project. And so we're clear about what the concept is. And as you look through the energy transition, there are more companies looking to find a gas resource to be able to be a long-term source for their own portfolios, and that's what we have in -- in Mauritania and Senegal.

So I don't -- I don't -- we know when we're having those conversations with -- with -- with interested parties, the -- the conversation is not about I was going for more -- formal sort of -- sort of bid process, but it's actually bringing on board the right people that can support a long-term vision for both the development concept and the -- and with the government.

Mark Wilson -- Jefferies-- Analyst

OK. Thanks a lot. Very clear. Thank you.

Andy Inglis -- Chairman and Chief Executive Officer

All right. Thanks.

Operator

Our next question comes from the line of Nick Stefanou with Res -- Renaissance Capital. Please proceed with your question.

Nick Stefanou -- Renaissance Capital -- Analyst

Hi, guys, thank you for taking my question. It's Nick from RenCap. On the Batam, awesome discovery you made a couple of years ago in EG, you -- you spoke about the infill drilling and ILX opportunities, but -- but what's the latest from Batam? Is it still not being considered as -- as a tieback to -- the target to their -- to their FPSO? That's -- it's the first question. And the second one is -- is for Neal.

Are you -- are you looking to refile RBL in the first half of -- of the year or have it spent by the units, it should be around -- around this time? But there's no -- and no mention of it so, yeah, that's the question.

Andy Inglis -- Chairman and Chief Executive Officer

OK, yeah, thanks, Nick. Yeah. No, a -- a -- Asam was an important sort of discovery for us. We're now doing the work to properly appraise the -- the opportunity and -- and actually figuring out the best way to integrate it into the -- to the infrastructure.

So there's more work to be done this year to position that for a development plan that fully optimizes all Ceiba and Okume infrastructure. So I -- I think it -- it -- for us, it was just a demonstration of additional resource there is there. We need to ensure that we've got a development plan where which properly optimizes the -- the reservoir, in particular, the sort of reservoir development of our -- of our sample for the future. And so for 2021, we're focusing on the -- the infill opportunities.

The -- the platform drill opportunities, therefore, they're easy to tie back and get into production. So the time between completing the well and production is very short. Asam will require some subsidy infrastructure to be put in place. And then -- and therefore, as we look at that, we need to make sure we've optimized that correctly.

Neal Shah -- Chief Financial Officer

Yes. And then, Nick, just on your question on the RBL. We do have a redetermination planned at the end of the first quarter. And we've just started discussions with those banks and they're going well so far.

As you know, the last redetermination was done in a much lower oil price environment. And so having a sort of more constructive oil prices will help that process. And is also, as you rightly mentioned, as part of that process, we will speak to the banks around less about refinancing but more of an extension of the existing facility, and that unlocks additional borrowing capacity as well as we've done in the past. And so the banks have been very supportive and we plan to continue sort of our regular process.

And as part of that, we'll continue to extend the maturities and increase the capacity on available capacity on the RBL.

Nick Stefanou -- Renaissance Capital -- Analyst

OK. Got it. And a quick follow-up. The -- the free cash flow range, it's 100 to 200.

That's -- that's quite large. Is it -- are the -- are the deltas solely due to the upper and lower end of the production guidance or are there like other -- other factors behind those -- behind that -- that -- that delta basically?

Neal Shah -- Chief Financial Officer

Yeah, I mean there -- there is a large piece of that is production, and then there's just the timing of some of the expenses. But I think because one cargo, even a $55 world is $55 million, right? So it is sensitive to -- to that work, which is why we've sort of left the range intentionally pretty vague.

Nick Stefanou -- Renaissance Capital -- Analyst

Yeah, fair enough. Thank you so much. Very clear.

Andy Inglis -- Chairman and Chief Executive Officer

Right. Thanks, Nick.

Operator

Our next question comes from the line of Richard Tullis with Capital One Securities. Please proceed with your question.

Richard Tullis -- Capital One Securities -- Analyst

Yeah. Thanks. So good morning, Andy and Neal. Two quick -- two quick ones.

Sorry if I missed this. What's the rough break out of the 60,000 a day 2020 exit rate by -- by major area?

Neal Shah -- Chief Financial Officer

Yeah, so just off the top of my head, Richard, it -- it'll be pretty close to historical known to sort of Ghana's 40% to 45%. EG is around 20%. And then the GoM is around 30% to 35%.

Richard Tullis -- Capital One Securities -- Analyst

OK. OK. And then follow-up. Looking at the Gulf of Mexico guidance for the first quarter, the 20 to 25, excuse me, 20,000 to 22,000 a day.

When you -- when you compare that to where it was say a year ago, somewhere in the neighborhood of 28,000 a day. What are the main drivers of the re -- reduced production there? Is it mainly the -- the lack of drilling in 2020 due to -- to the pricing or any other -- any other contributing factors, maybe plant downtime, issues bringing production back on from -- from the storm season, etc.?

Andy Inglis -- Chairman and Chief Executive Officer

Yeah. Hey, Richard, yeah. No, you're -- you're right. So if you look at it, we only had one in four well actually in 2020, which was the -- the Tornado injector.

Yeah. And of course, that that through time actually starts to build the reservoir pressure, which leads to an increase in production. So there was natural decline which was -- which is -- which is why we're seeing the current rate. And therefore, with the -- the additional -- with the Kodiak well, which we're completing at the moment, the same Kodiak well.

And then the Tornado-5 well plan for the middle of the year, that will help us sort of bring production up. The only fact when you look at it on a quarterly basis. OK. The first quarter has been weak.

We had an unplanned downtown issue on the Kodiak number one well, which came off-stream around December. And we're -- we're finishing that repair, and the well will be back on by the end of the month. So that affected the Quarter 1 sort of uniquely. Yeah.

So I think if you look at the numbers overall and you look at on a yearly basis, the -- the lowering of 2021 versus the sort of underlying rate in -- in '20 is simply around the -- the decline rate. If you look at specifically at Quarter 1, the -- the -- the -- the unplanned downtime on the Kodiak-1 well has -- has had a differential impact.

Richard Tullis -- Capital One Securities -- Analyst

OK. Well, thanks very much.

Andy Inglis -- Chairman and Chief Executive Officer

OK. Thanks, Richard.

Operator

Our next question comes from the line of Al Stanton with RBC Capital Markets. Please proceed with your question.

Al Stanton -- RBC Capital Markets -- Analyst

Yes, guys. Good evening. Just two very simple questions if I may. Just with respect to -- to Tortue and the set of the FPSO.

Should we just assume that the later that sale happens, the more money you get? So we might as well just think in the 250 and -- and worry about the quarterly breakdown when we put out quarterly numbers. And I suppose the other question is -- is about hedging. Neal, rather, unfortunately, the forward curve isn't probably the shape you want. What are you doing about your hedging policy given the -- the forward curve is much slower than spot price? So are you -- are you just sucking that up or are you taking a change in strategy?

Neal Shah -- Chief Financial Officer

Yeah, so just on the -- on the first question from a timing perspective. Yeah, I mean, yeah, we're basically expecting sort of the forecasting that $250 million benefit. There is -- the longer it sort of takes, there's a larger sort of working capital impact before you get that back. But in terms of the overall transaction, you still save the $320 million net to us in any case.

So there is a sort of shift around depending on when it closes in terms of how that pushes forward. But that will just be a timing effect around the transaction and doesn't change sort of the overall benefit from the transaction.

Al Stanton -- RBC Capital Markets -- Analyst

Yeah.

Neal Shah -- Chief Financial Officer

On your second point just on hedging. Yeah, I mean, so it is -- it is in backwardation, which is -- is a little more difficult to -- to hedge into. But again, I think from a general perspective, as the business does great in the $60 world, and so what we're trying to do and even in a $50 world. And so as we're continuing to layer in hedges on a pretty regular basis into '22, the goal is put in downside protection that lets us fund the business.

And so we're putting in floors around that $50-ish level and trying to keep as much upside as possible. So the last few trades, we've been able to get upside up to call it $70 per barrel, and we'll layer those in across the -- the year. So as -- as -- the good thing is it's sort of as you go out in time, the -- the cards continue to move up and so they'll continue to help us layer in more and more attractive hedges. But it is something we're going to consistently do as we've done in the past and -- and that'll guarantee our ability to fund future expenses.

Al Stanton -- RBC Capital Markets -- Analyst

Should we expect you to move away from swaps and three-way collars or we'll just see how it goes?

Neal Shah -- Chief Financial Officer

Yeah, I mean I think in terms of overall program design, we're not going to massively change the way -- the way we've done it. We've done it pretty consistently. And so there'll be a combination of -- of instruments depending on what's most attractive at the time. But ultimately, again, what we're trying to do is forecast or put in hedges that ult -- ultimately allow -- allow us to fund the plan, and within that context, keep as much upside as possible.

And so as the prices move around, different instruments will look different, look attractive at different points of time. And so we start off with watercolors that give us that downside and it's much upside to that. And as sort of things normalized, we can shift into some of those other structures. But the objective, overall, stays the same.

Al Stanton -- RBC Capital Markets -- Analyst

Thank you.

Andy Inglis -- Chairman and Chief Executive Officer

All right. Thanks, Al.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Jamie Buckland -- Vice President of Investor Relations

Andy Inglis -- Chairman and Chief Executive Officer

Neal Shah -- Chief Financial Officer

Charles Meade -- Johnson Rice -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Bob Brackett -- Bernstein Research -- Analyst

James Carmichael -- Berenberg Bank -- Analyst

Mark Wilson -- Jefferies-- Analyst

Nick Stefanou -- Renaissance Capital -- Analyst

Richard Tullis -- Capital One Securities -- Analyst

Al Stanton -- RBC Capital Markets -- Analyst

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